Forum Replies Created
I think for it to work in the future someone needs to be able to explain how it works. Having said that, heaps of people (including plenty on this site) were happy to go along for the ride with little/no real explanation…so maybe it wouldn’t be that difficult to give it another run.
Hi,
I.m not sure about whether the quote represents good value.
As a comparison, my wife & I and another couple recently painted our 4 bed IP. It cost us $400 for the paint & brushes. We already had rollers, drop sheets, etc. It took us 2 days (did it over 1 weekend). If you have the time & are in a position to paint, it isn’t very difficult & can save some money.
Sorry I can’t be of more help regarding your quote.
Cheers
Jason.Those who do not work in finance do not realise that your ‘real’ equity is not your ‘useable’ equity.I’m hearin’ ya Rob.
Or should I just say, welcome to the world of cash flow positive property, where inflation, CGT, property maintenance costs, unforeseen adverse events, & other market forces don’t impact negatively on your portfolio….[arrowhead]
….well, at least not until you have left the seminar [
]Cheers
Jason.I’d say it’s the latter.
I dont’ know much about SMSFs but i thought there was a consensus of opinion that you need a minimum of around $200K for a SMSF to be worthwhile?
Does anyone know if this the case?
cheers
Jason.Mortgage Adviser, thanks for introducing facts & common sense (the mortal enemies of seminar advice).
I reckon we will have to add another thread titled, “Seminar said…Reality is…”
Cheers,
Jason.As I said with my post in the “Equity Lending Forum is a Disgrace” thread, living off equity is more dangerous for those people who don’t understand how to accurately calculate numbers like owners equity etc…and as is the case with some people in this thread, a simple thing like income tax.
I would like to introduce another aspect of reality to the discussion & that is the issue of loan term. Let’s say you have a portfolio of $3M with $2M owing and you have a 30-year loan term.
Even though you are lucky enough to live in a place where your portfolio appreciates by 10% every year (as suggested earlier), your are increasing your debt as well (eg, $300K growth – $100K to live off = $200K growth remaining). Only problem is that your $300K growth is on paper, whereas your $100K increase in debt is real (regardless of fluctuations in your $300K paper profit).
So yes, you could have $3.3M on paper, now owing $2.1M. But remember you originally borrowed $2M over 30 years…so if the lender was managing their risk appropriately they would re-asses your application to access more equity each year, based on the fact that the years are ticking by.
It seems as though your cash flow (rent) has to increase to compensate for the double whammy of increasing debt & decreasing loan term.
I have over $1M in equity in my property portfolio & nup, I can’t get my head around why I would ever engage in this strategy.
But I do hope some people continue to engage in living off equity so that in 20 years time we can have a more long term picutre of how the strategy works – I think we have the makings of a new reality TV show here. [biggrin]
Cheers,
Jason.I agree with Surrey’s summation.
Living off equity doesn’t make sense to me. If you look at the way big companies were rated by (for example) Standard & Poor in the last year, capital management & in particular, debt reduction, was a key focus.
I think the comment made was something like, “…in terms of capital management, nothing beats debt reduction..”
I guess if this is what “the big boys” are focused on, maybe it’s an indication that debt reduction (rather than trying to cover a higher level of debt with a higher rental income) should be the focus for a little guy like me too.
Cheers,
Jason.It won’t affect my investment decisions as I see negative gearing as a tax reduction strategy, which for me is always secondary to my investment strategy (ie, make sure you’re buying a good investment first; you will never get rich off tax deductions).
I think people investing in something just because it’s negatively geared, is as silly as investing in something just because it’s CF+
I agree with superman that super surcharge elimination may have more impact.
Cheers
Jason.I periodically have the wrapping debate with friends & family. They all argue that it is immoral, whereas I think it is just another way to get a decent return on your investment.
(I also think that generally there are good reasons why wrappers are wrappers & wrappees are wrappees).
IMHO as long as people are clear about the conditions of the contract they are entering into, any margin is acceptable. The market value for a product is the price people are prepared to pay. Different circumstances will mean some people will be willing to pay more than others.
Cheers,
Jason.Originally posted by resiwealth:
I want 2 go on record as saying that IMHO this is leading Australians of the future into financial turmoil.We r not teaching financial fundermentals of how 2 save and start small to build wealth, we r teaching laziness.
I agree. IMHO this is reflected in an article in May API, which features a portfolio that got me interested, especially the way they calculate “profit” on sale of properties.
I say, “profit” because the article does not list costs for interest on loans, rates, maintenance costs, CGT, etc.
I can see how equity lending for people who don’t understand how to accurately calculate the real return on an investment, could lead them into financial turmoil. As can a lack of understanding of CGT (see the “Budget: Impact on Capital Gains Tax” thread under General Property forum).
Cheers,
Jason.I suggest you talk to a financial planner before you make your decision.
Cheers
Jason.Jack would actually pay 48.5% (47% tax plus 1.5% medicare levy).
Have you noticed a trend in LPTs recently? Not perhaps the place for the majority of a pension portfolio perhaps?Like residential property, it depends which ones you buy.[biggrin]
J.
I agree with Mortgage Adviser on this one.
I currently hold property, shares, cash & some $$$ invested in a venture capital project.
I read an article in the AFR on the weekend in which someone was quoted as saying that over any 10-year period in history, shares have always outperformed property.
I don’t know if this true or not but I do agree with Ross Greenwood when he said that there will always be more money to be (potentially) made in shares than property because shares are shares in private companies. And it is this private industry that drives any economy, not housing. Increase in housing prices is just a by-product of the economic environment (I think I am paraphrasing him accurately).
It is important to not to put all your eggs in one basket. And also to be able to move eggs between baskets. For example, having a whole swag of cash flow positive properties (eg., see pp.42 & 48 of this month’s API) is about the least tax effective portfolio you would want to hold going into retirment. Much more tax effective (with current regulations) to sell up & put proceeds into allocated pension or similar.
PROPERTY investors need not worry, you can always make sure LPTs make up the bulk of your allocated pension’s portfolio.[biggrin]
Best of luck to everyone with their investments.
Jason.
Hi Mortgage Adviser,
I breathed a sigh of relief when I saw your figures. I thought I had miscalculated something when everyone was saying this was such a great deal.
(I should correct my original post though – I meant to say the property would return 2%-3% in real value terms each year over 5 years – rather than “..it would keep pace with inflation..”).
I agree that your figures are conservative & that you are right when you highlight that this minimal return is achieved with 10% growth. Indeed, what would it look like at 4%!
IMHO this example highlights the difference between people who are sophisticated investors vs unsophisticated investors.
Sophisticated investors focus on calculating the real costs & reutrns, whereas unsophisticated investors generally have “less refined” accounting practices – ie, I bought it for $200K, cash flow neutral for 5 years, then sold for $250K, therefore I made $50K. I think your example highlights that working out real returns is more complex that this.
Good on ya!
Cheers,
Jason.I use Shane Watts for all my investments, structures of trusts etc. He is based in Milton in QLD. Will send you a PM with his details.
Cheers,
Jason.Going by the numbers The Mortgage Adviser provided, it looks as though this investment would only just keep pace with inflation (between 2.5%-3%) per year over the 5 years.
So it seems to be maintaining its “real” value but not really making you any money in terms of net worth.
What are other people’s thoughts? What did you come up with Mortgage Adviser?
Cheers,
Jason.babu88,
In my experience, agents are great at attracting tenants but are useless at securing attractive rental yields.
With my IP, the agent said they could get $340/wk but that would cost me 9.9%, leaving me with about $305/wk. Instead, I put a 3-line advertisement in the paper for $63 & got a tenant the day after settlement who paid $360/wk.
We had problems with this tenant & got rid of them after about 4 weeks. We readvertised (again $63) & got a new tenant within 10 days who paid $380/wk + pool maintenance costs.
Over a 12 month period, the difference between our $380/wk and the agent’s $305/wk more than covers the income lost from 10 days vacancy.
The agent is paid to work for you. If the agent is unable to follow your instructions, I would get rid of them & either find another agent or do it yourself.
Best of luck with your investing.
Cheers,
Jason.If you can get a hold of the Money & You lifout of the Courier Mail (from Wed 4 May, 2005), there is a “makeover” on page 3 that sounds a lot like your situation.
It may provide some useful tips for your future investing.
Cheers,
Jason.
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